Boost, the remedy which relieves Air France but does not cure it

The signing of an agreement with the SNPL and the trade unions of hostesses and stewards on the conditions for the creation of a company at reduced costs (project Boost) and on the evolution of conditions of work and remuneration, is a very good thing for the French company and for the group Air France-KLM. It puts an end to a long period of social tensions between the unions and management which had been started nearly three years under the chairmanship of Alexandre de Juniac to the head of Air France-KLM, and Frédéric Gagey to that of Air France.

A company under voltage

In the wake of the restructuring plan Transform 2015 (2012-2014), which was passed smoothly social despite its size, the willingness of the leadership of the time to move on to a new plan for the improvement of the economic performance (Plan Perfom), in order to bridge the competitiveness gap of Air France with its competitors and achieve sufficient profitability to finance its investments, has put the company under high tension, as in particular illustrated the 14-day strike of the pilots in September 2014, the physical violence on members of management in October 2015, or the strikes of the pilots and hostesses and stewards in the summer of 2016. A period when the group is torn apart in a climate of distrust extreme between the management and the trade unions, the trade unions, between them, Air France and KLM, but also between the unions and some employees.

Today, with the signing of these agreements, Jean-Marc Janaillac, and Franck Terner, respectively president and CEO of Air France-KLM and chief operating officer of Air France since last year, have put an end to this period of tension. Without agreement, they probably would have tried to keep the project Boost by trying to reattach it, not Air France, but Air France-KLM, a blind French trade unions. A diagram would have made sure the fuse on the driver side.

The end of inaction

Concomitantly, return to a period of quiet on the social plan puts an end to a long period of stagnation.

“It may be symbolic, but these agreements are a way of saying that Air France is on the move “, says a trade unionist. “These agreements could re-energize “, wants to believe in a very high part of the company. “Compared to the long conflict maintained with the trade unions and the absence of margins of manoeuvre that this situation led to management, these agreements are a step in the right direction,” believes an analyst.

Some even consider these agreements as a means to reassure investors and support the share price which continues to climb since February (it has been multiplied by 2.7, to exceed € 13) in order to be able to launch a capital increase combined with the entrance in the capital of a strategic partner.

Boost, the antidote to the ills of Air France?

But all are unanimous : “These agreements are not the answer to all the equations that must solve Air France,” explains the same trade unionist. “Yes, it is a step in the right direction, but competitors, such as Lufthansa or IAG move faster “, said the same analyst. “We have not put in place something that is the opposite of the heaviness of Air France,” commented an inside source.

These agreements do not resolve, in fact, the gap of competitiveness between Air France and its competitors (excluding taxation specific that stood in the French air transport). And do not avoid not to Air France know again difficult hours on the day the environment, (exceptional today with the dynamism of the traffic and the weakness in the price of fuel), will return. The gains of improved economic performance are in fact extremely modest at Air France, while Boost, the main receptacle of the savings measures sought by management (€130 million are expected by 2020) will only apply to 10% of the offer to Air France by 2020 (10 long-haul aircraft and 18 medium-haul).

And to go beyond, management will have to get the green light from the unions of pilots and personnel of the cabin as she is committed to that. Certainly, the agreements relating to Boost are of indeterminate duration and may be denounced at any time by the management. But in practice, the successive directions have preferred the negotiation of agreements with the passages in strength. The extension of the scope of Boost is therefore likely to go through lengthy negotiations and therefore by concessions.

Questions about the target and the product

In addition, if the cost structure of this new company is known to be lower than that of Air France to 18% on long-haul and 15% on medium-haul, the difference will be less compared to other companies classics that show lower costs than Air France. Compared to companies in the Gulf such as Emirates or Qatar Airways, the target Boost, the costs of the new subsidiary of Air France should be higher. Ditto compared to the low-cost airlines long-haul as Norwegian, or French Blue, a concept that’s sceptical of the management of Air France.

Beyond the cost structure, the product which will be unveiled in a few days (it should not have bunks in the cargo holds as mentioned) also poses the question for combat of the companies in the Gulf on “lines mi business-mi recreation” ultra deficit. Even if it is a good bill, it will remain below that of Air France, and therefore that of the companies of the Gulf. No-there not a risk that customers, especially business class, to choose the competitors of the Gulf renowned for the quality of their services ?

Boost is not a low-cost

To the extent that the positioning of this company is another question. The threat is in fact much broader than that of the companies of the Gulf on the lines of half-business half-leisure. What will happen tomorrow if the phenomenon of low-cost long-haul develops on the lines of “business” to the United States as Norwegian or to lines leisure as just started to do French Blue to The Meeting and tomorrow on the Island of Mauritius, and as envisaged in Norwegian to the Caribbean ? Only will it not push this company Air France “bis” beyond markets “half-business half-leisure” ? And if yes, the initial product will be there correct ?

“I don’t think Boost is a response to the low-cost long-haul”, is concerned-there in-house.

The direction was not hidden. This new company will not be a low-cost has often reminded us Jean-Marc Janaillac.

The direction she too let go ?

Many, including among some members of the SNPL, believe that the leadership has too dropped to the unions in these negotiations. But could it be otherwise ? Hard to say, of course, with the trade unions of seafarers are fully trained that do not share the observation of the economic situation of the company and the competitive environment in which it operates. This point, and fundamental to explain the social tensions within Air France. A number of unions have surfed on the lower of the invoice fuel to explain that Air France was in good health, up to mention some 3 billion euros in operating losses accumulated between 2009 and 2014, the capital increase of 760 million euros by the Air France-KLM in 2015, the negative equity recorded again at the end of 2015, or explain it only by the weight of taxation and airport charges that hit the French flag.

A milestone and not a culmination

Of course, Air France and Air France-KLM will be better. The group should even proclaim at the end of July one of the best financial performance in the second quarter since its creation in 2014, if not the best. But, the weakness of the oil price, the dynamics of the traffic and the strengthening of the euro against the dollar, strongly contribute to these results.
These agreements signed with the seafarers suggests a period of social peace. For an expert in the industry, this trust between management and the unions should lead to new measures to continue the transformation of Air France, years, serenity, and not on a new period of stagnation. In other words, the Boost should be a milestone and not a culmination.

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